It's the Economy, Stupid, Egypt & IMF Edition

Mirror, mirror on the wall
Who's the most conditionality-laden of them all?
(That's not my cartoon, by the way) 

Americans enjoy fairy tales where everyone lives happily ever after: Cinderella. Snow White and the Seven Dwarves. Unfortunately, many of these Americans in positions of power seem to mistake Disneyfied endings with foreign policy: Liberating Afghanistan from the Taliban. Greeting American liberators with flowers in Iraq. (Yeah, right...and I have some beachfront property in Nebraska I want to sell you.)

And so we have yet another of these fanciful stories about Middle East revolution with the various "Arab Spring" events. Supposedly, left-leaning commentators suggest, these countries' regime changes are more likely to succeed given that (a) they were homegrown movements of the politically unwashed masses as opposed to US invasions and (b) social media has forever changed the conduct of politics worldwide. As we are finding out, things are not that way. If anything, uncertainties introduced into Egypt's economy have made things worse economically as tourists and foreign direct investment flee the country. Thus, the aftermath of euphoric events is depressingly simple to describe in (a) simply demonstrating that old power struggles between the military and the fundamentalists still shape politics there without much consideration of the reformist voice and (b) social media's current irrelevance in Egypt for carving out a desirable future political-economic path. Same old, same old.

Make no mistake: Egypt is in serious economic trouble as its foreign exchange receipts dwindle and borrowing costs become onerous. When your 3-year borrowing costs are north of 16% in this day and age, you're obviously regarded as something of an economic basket case. It is here where the split personalities of America come into play. Whereas the Yanqui-led invaders goaded the Paris Club of sovereign lenders to cancel virtually all of Iraq's Saddam Hussein-era debt, they are making no such concessions for economic crisis-ridden Egypt.

Turning to the IMF, the new Islamist-led executive plans to once more approach the Washington-based lender. A few months ago, remember that the Muslim Brotherhood-linked parliamentarians desired a conditionality-free loan. That not quite working out as planned to say the least, perhaps the new finance minister has more realistic proposals to present:

Egypt invited officials from the International Monetary Fund (IMF) to visit to resume talks on a $3.2 billion loan, the state's finance minister Mumtaz al-Saeed told reporters on Saturday. An IMF deal would help Egypt stave off a budget and balance of payments crisis and add credibility to economic reforms needed to restore the confidence of investors who fled the country after the state's popular uprising of last year.

It's the economy, stupid, in the Middle East, although those behind the controls look very familiar:

Hisham Kandil, the first prime minister named by Egypt's newly elected Islamist President Mohamed Mursi has drawn on bureaucrats and Islamists for the new cabinet, disappointing those who wanted a more inclusive government able to achieve the revolution's demands for democracy and prosperity. "The economic file was the first file that the government saw it should give all the needed attention," a cabinet statement said adding that its first meeting discussed means to reduce the state's deficit and bring back the flow of investment to the country. 

That said, the considerations the IMF will look at in deciding whether to lend to Egypt will be familiar to its watchers. First, is the Morsi-led government a credible one? Certainly, reformists and Christian voices would point out its lack of representation of other voices when even the IMF has highlighted the need for "broad political consensus." Second, will this government behave realistically and accept IMF conditionalities? Unlike their befallen parliamentary brethren. one certainly hopes. Third, will social disruptions derail IMF conditionalities if implemented? Especially in a hard-hit nation like this one, you cannot ignore such considerations:

The [previous standby agreement proposal] highlighted fundamental structural reforms primarily targeting the costly subsidy scheme, principally food and energy. In fiscal year 2011-2012, the state budget allocated LE124 billion to finance food and fuel subsidies (9 percent higher than in 2010-2011), which amounted to 24 percent of total expenditures. In FY 2012-2013 budget subsidies amount to LE96.6 billion but this number has already increased by more than LE28 billion as the Minister of Finance Momtaz El Saeed has made available additional funds to subsidize petroleum and wheat in light of political turmoil. 

To be honest, it's an unpromising situation whether you look at matters from the perspective of domestic politics or those of obtaining IMF lending and its associated conditionalities.